Back before 2008 Peter Schiff was harshly criticized and laughed at for his predictions about a coming economic collapse. Among other things Schiff warned that consumer spending had hit a wall, stocks were overpriced and lax credit lending practices would lead to a detonation of the banking system. Rather than heed the warnings, the biggest names in mainstream media tried to discredit him for not toeing the official narrative. Shortly thereafter, of course, Schiff was vindicated and much of the doom he had forecast came to pass.

Pyramid of Capitalism

Today, Schiff continues to argue that the economy is on a downhill trajectory and this time there’ll be no stopping it. All of the emergency measures implemented by the government following the Crash of 2008 were merely temporary stop-gaps. The light at the end of the tunnel being touted by officials as recovery, Schiff has famously said, is actually an oncoming train. And if the forecast he laid out in his latest interview is as accurate as those he shared in 2007, then the the train is about to derail.

We’re broke. We’re basically living off of debt. We’ve had a huge transformation of the American economy. Look at all the Americans now on food stamps, on disability, on unemployment.

The whole economy has imploded… the bottom hasn’t dropped out yet because we’re able to go deeper into debt. But the collapse is coming.

Fundamentally, America is worse off now than it was pre-crash. With the national debt rising unabated and money being printed out of thin air without reprieve, it is only a matter of time.

Schiff notes that while government statistics claim Americans are saving again and consumers seem to be spending, the average Joe Sixpack actually has a negative net worth. But most people don’t even realize what’s happening:

I read a statistic… The average American has less than a $5000 net worth… it’s pathetic… we’re basically broke… but in fact it’s much less… If you actually took the national debt and broke it down per capita, the average American has a negative net worth because the government has borrowed in his name more than the average American is able to save.

What’s happening is pretty much what we would anticipate. I don’t see from the data any real economic recovery, certainly not in the United States.

We’re spending more money, but it’s not because we’re generating more wealth. We’re generating more debt. We’re using that borrowed money to consume and so temporarily it feels that we’re wealthier because we get to spend all that money… but we have to come to terms with paying the bill.

The bills are going to come due. Right now interest rates are being kept at zero which makes it possible to service the debt even though it’s impossible to repay it… at least we can service it. But once interest rates go up then we can’t even service it let alone repay it.

And then the party is going to come to an end.

The problem, of course, is that no one with any real influence over public perception, like our elected officials or the media, will do anything about it. They’ll continue the party until it comes to an abrupt and irreversible end, and anyone who goes against the official narrative will be branded a lunatic gloom and doomer or extremist.

But vilifying those who are blaring the warning sirens will do nothing to change the end result:

We’re going to have a crisis… There are always going to be people who say ‘well, you’re a stopped clocked… you keep predicting doom and eventually it happens’… but you have to back and listen to why… Why are they saying it?

If you look back at things that I’ve said and the things that Ron Paul has said… This is why it’s happening… it’s not like we’re just saying negative things to be negative and then when something negative happens we can claim credit for it happening.

If you look back at the events it bears out that we’re right… unfortunately our opinions are in the minority… and you have governments that have a vested interest in ignoring these opinions because they don’t want to change because they’re at the root cause of the problem. But they don’t want to acknowledge their role in creating the problem. They don’t want to acknowledge that the problem is more government and that we need less government because that’s not how they stay in power. They promise something for nothing… they promise that government is the solution for your problems, not the cause of your problems.

They’re never going to acknowledge people like Ron Paul for what they’re saying… but they’ll try to discredit you by saying ‘well, you’ve been saying this for years and nothing bad has happened.’

But look around. A lot of bad stuff has happened. We just haven’t had the final and complete collapse. But what good is it when that happens? Now it’s too late to do anything about it.

The reality is that the American economy is on its last leg. Black Friday sales were pitiful, some of the world’s leading companies are warning of recession, and U.S. national debt will soon surpass $20 Trillion.

Just as was the case before the Crash of 2008, all of the signs are there. And just like before, the stock market continues to hover near all-time highs.

This article was written by Tyler Durden and originally published at Zero Hedge.

Editor’s Comment: Those who follow this website and others who cover similar information have known of these trends for a while, but it is revealing nonetheless to see how deep the recession has reached in raw numbers. The role of the Federal Reserve has been disastrous for the American people, and the more that its chairmen and chairwoman intervene – in either direction – the worse it seems to get.

If the graph can be interpreted literally, we are clearly headed for the most severe restructuring of wealth and power since shortly after the last world war. How long until the next war heads our way?

The following brief summary of the global economic situation should, once and for all, end all debate about whether the world is “recovering” or is now mired deep in a recession.

Failure of Government

From DB’s 2016 Credit Outlook

Debt has continued to climb since the crisis with Global Debt/GDP still on the rise, with no obvious sign of when this rise stops for many major countries. Indeed much of the post GFC increase in debt has been raised on the back of the commodity super-cycle which is currently unraveling in EM and the US HY market. Outside of this, the US overall has de-levered to some degree but even there debt levels remain very high relative to all of history excluding the GFC period.

With limited tolerance from the authorities to see defaults erode the huge debt burden, the best hope for a more normal financial system is for activity levels to increase so we can slowly grow the economy into the debt burden. However this requires strong nominal GDP growth and we continue to see the opposite. The left hand graph of Figure 6 looks at a global weighted average of Nominal GDP growth in the G7. On this measure we are still seeing historically weak activity.

In dollar terms the situation is even worse. The right hand chart of Figure 6 shows a much more volatile global NGDP series which converts the size of each economy in dollar terms and then looks at the growth rate YoY. With the recent strength in the USD we are seeing a huge global dollar nominal GDP recession – the worst since the 1960s. Whilst this might not be a series that is followed, it does show the sharp contraction of dollar activity levels in the global economy over the last year or so which has to have ramifications given it’s the most important global financial market currency.

What DB did not point out but is obvious, is that the synthetic dollar squeeze of the past year has made the global collapse now even worse than what was experienced during the great financial crisis, and it is getting worse by the day. We are at the End of the Road for the FED

And so, with the world trapped in the worst USD-based GDP recession in 50 years, here is the question for Yellen: with every other central bank easing and the Fed tightening, what happens to i) the USD in the future and ii) to future world growth in USD. When does the war start ? Very soon.

The Collapse Of The Petrodollar: Oil Exporters Are Dumping US Assets At A Record Pace

Submitted by Tyler Durden on 04/15/2015 reprinted here in case you missed the epoch eventBack in November we chronicled the (quiet) death of the Petrodollar, the system that has buttressed USD hegemony for decades by ensuring that oil producers recycled their dollar proceeds into still more USD assets creating a very convenient (if your printing press mints dollars) self-fulfilling prophecy that has effectively underwritten the dollar’s reserve status in the post WWII era. Here’s what we said last year:

Two years ago, in hushed tones at first, then ever louder, the financial world began discussing that which shall never be discussed in polite company – the end of the system that according to many has framed and facilitated the US Dollar’s reserve currency status: the Petrodollar, or the world in which oil export countries would recycle the dollars they received in exchange for their oil exports, by purchasing more USD-denominated assets, boosting the financial strength of the reserve currency, leading to even higher asset prices and even more USD-denominated purchases, and so forth, in a virtuous (especially if one held US-denominated assets and printed US currency) loop…

World Currencies

Few would have believed that the Petrodollar did indeed quietly die, although ironically, without much input from either Russia or China, and paradoxically, mostly as a result of the actions of none other than the Fed itself, with its strong dollar policy, and to a lesser extent Saudi Arabia too, which by glutting the world with crude, first intended to crush Putin, and subsequently, to take out the US crude cost-curve, may have Plaxico’ed both itself, and its closest Petrodollar trading partner, the US of A.

As Reuters reports, for the first time in almost two decades, energy-exporting countries are set to pull their “petrodollars” out of world markets this year.

Fiat Currency with QE monry printing

Not long afterwards (and by that we mean “not long” in the sense that three months isn’t really that long when it comes to everyone catching on to what “fringe” bloggers say is likely important), Bank of America took notice in the form of interviews with a half dozen or so in- house economists whose views can be generally summed up as follows: “…the end of the Petrodollar recycling chain is said to impact everything from Russian geopolitics, to global capital market liquidity, to safe-haven demand for Treasurys, to social tensions in developing nations, to the Fed’s exit strategy.”

Here’s Goldman with a bit of color on the projected magnitude of the shifting Petrodollar dynamic:

We estimate that the new (lower) oil price equilibrium will reduce the supply of petrodollars by up to US$24 bn per month in the coming years, corresponding to around US$860 bn over the next three years. The ultimate impact, however, will depend on a number of key current account buffers (goods imports, net factor income and service imports).

Against this backdrop we bring you the following, from Bloomberg which highlights the fact that oil producers are now liquidating their Petrodollar assets at a frenzied pace in the face of today’s “crude” realities:

In the heady days of the commodity boom, oil-rich nations accumulated billions of dollars in reserves they invested in U.S. debt and other securities. They also occasionally bought trophy assets, such as Manhattan skyscrapers, luxury homes in London or Paris Saint-Germain Football Club.

Now that oil prices have dropped by half to $50 a barrel, Saudi Arabia and other commodity-rich nations are fast drawing down those “petrodollar” reserves. Some nations, such as Angola, are burning through their savings at a record pace, removing a source of liquidity from global markets.

If oil and other commodity prices remain depressed, the trend will cut demand for everything from European government debt to U.S. real estate as producing nations seek to fill holes in their domestic budgets.

“This is the first time in 20 years that OPEC nations will be sucking liquidity out of the market rather than adding to it through investments,” said David Spegel, head of emerging markets sovereign credit research at BNP Paribas SA in London…

A concomitant drop in foreign reserves, revealed in data from national central banks and the IMF, is affecting nations from oil producer Oman to copper-rich Chile and cotton-growing Burkina Faso. Reserves are dropping faster than during the last commodity price plunge in 2008 and 2009.

The drawdown reverses a decade-long inflow into the coffers of commodity-rich nations which helped to increase funds available for investment and boost asset prices. Bond purchases have helped to keep interest rates low.

Oil producers recycled a large portion of their petrodollars — a term coined for the dollar-denominated oil trade — by buying sovereign debt of the U.S. and other countries. As they draw down reserves, Middle East countries are likely to sell “low-yielding European assets,” George Saravelos, strategist at Deutsche Bank AG, said in a note to clients.

Available data shows foreign savings by commodity-rich nations are dropping across the board. In Chile, the world’s top copper exporter, foreign savings fell $1.9 billion in February, the biggest drop in three years.

Analysts and officials anticipate that commodity-rich countries will continue selling off foreign assets through the year.

The IMF’s Arezki said that unless they cut spending, resources-rich nations “have no choice but to draw on their financial assets when available” as oil prices are well below the fiscal break-even needed by many exporting nations. The IMF estimates that many oil countries would only balance their budgets if crude prices recover to $75 or higher.

And so the liquidity drain is on, the only question is how far reaching the consequences will be and whether DM central bank largesse can effectively offset the implications of the petrodollar spigot being turned completely off for the first time in nearly two decades, representing a monumental fall from the more than $500 billion in EM Petrodollars that inundated the market just seven years ago. Here’s an interesting take on this from Citi:

The longer crude prices persist at current levels, the more likely it is that these investors stop seeing inflows. And if that were to be the case, then the drop in crude prices could end up effectively offsetting further balance-sheet expansion from the BoJ and ECB.

Naysayers will argue that the two aren’t equivalent: QE is money creation while petrodollars are a zero-sum game. In other words, while petrodollars are being accumulated at a slower rate because crude prices have dropped, other economic actors are experiencing a corresponding windfall.

While that’s certainly the case, what matters is how the savings from lower crude oil prices end up getting invested relative to the investments made by sovereign wealth funds and FX reserve managers. And on that score, we suspect that petrodollar investors generally make conservative investments that are inherently fixed income-friendly, while the savings from lower gasoline prices tend to grow the top line revenue of consumer-oriented companies and the margins of those companies with significant transportation costs. As such, forsaken petrodollars rarely find their way back into fixed income markets.

In a very real sense then, we’d argue that the decline in petrodollar growth is likely to equate to less demand for fixed income securities and make the withdrawal of Fed QE that much more palpable.

As we said back in February, “…few actually grasped the implications of what plunging oil really means in a world in which this most financialized of commodities plays a massive role in both the global economy and capital markets, not to mention in geopolitics, with implications far, far greater than the amateurish ‘yes, but gas is now cheaper’ retort.” In the end, the real question may be this: what happens socially and politically in EM oil producing states when, after years of depressed prices, the coffers finally run dry?

WASHINGTON, D.C. — Gallup’s Economic Confidence Index was -14 for the week ending Aug. 23, down slightly from -11 the week prior. Growing concerns about China, which devalued its currency and saw major losses in its stock market, led to a global stock sell-off, including in the U.S., where the Dow Jones declined by more than 500 points by market close on Friday.

This is the second time in the past two months in which an international economic event appears to have modestly affected U.S. stocks as well as economic confidence. Last month, as the Greek debt deal was being finalized, U.S. economic confidence also dropped to -14, matching the latest week’s reading as the 2015 low and the worst weekly score since September 2014.

Gallup’s Economic Confidence Index reached positive territory for the first time since 2008 in late December 2014. It remained there until late February, when it began dropping as U.S. gas prices began to rise.

The Economic Confidence Index is the average of two components: how Americans rate current economic conditions and whether they feel the economy is getting better or worse. The index has a theoretical maximum of +100, if all Americans rate the economy as good and getting better, and a theoretical minimum of -100, if all Americans rate the economy as poor and getting worse.

Americans’ perceptions of the economy’s direction became more pessimistic last week, as the outlook component score fell six points to -21, the lowest weekly average since the end of July 2014. This latest average was the result of 37% of Americans saying the economy is “getting better” and 58% saying it is “getting worse.”

The current conditions score was stable last week, averaging -6, similar to what has been found most weeks since late May. This was the result of 24% of Americans rating the current economy as “excellent” or “good” while 30% rated it as “poor.”

Bottom Line

China, the second-largest economy in the world and a major exporter of goods to the U.S. and other countries, has experienced tremendous economic growth in recent years. Now, with the Chinese economy showing signs of weakness, and its government responding by devaluing its currency, investors abroad are showing concern. The questions surrounding China’s economy appear to be a major reason for losses in the global markets, including in the U.S. To date, Americans’ economic confidence does not appear to have been greatly shaken by the events, but the current index score ties the lowest reading this year.

The situation in China may continue to reverberate in the U.S., with U.S. stocks closing much lower on Monday and European markets starting the week with large drops. To the extent stock markets continue to suffer, particularly if this affects broader aspects of the economy, Americans’ confidence could be shaken further in the coming week.

Results for this Gallup poll are based on telephone interviews conducted Aug. 17-23, 2015, on the Gallup U.S. Daily survey, with a random sample of 3,554 adults, aged 18 and older, living in all 50 U.S. states and the District of Columbia. For results based on the total sample of national adults, the margin of sampling error is ±2 percentage points at the 95% confidence level. All reported margins of sampling error include computed design effects for weighting.

Each sample of national adults includes a minimum quota of 50% cellphone respondents and 50% landline respondents, with additional minimum quotas by time zone within region. Landline and cellular telephone numbers are selected using random-digit-dial methods.